Africa Could Become Fertile Ground For New Energy Investment

by | Nov 29, 2016

africaAfrica wants to become fertile ground for new energy investment — investments that would help electrify parts of the continent and make it ripe for new businesses and new jobs.

“We lose 5% of our potential GDP every year, and African industries cannot be competitive without access to electricity,” says Akinwumi Adesina, president of the African Development Bank at the climate conference in Morocco earlier this month, as reported the Guardian of London. “I believe that’s why we can’t break away from reliance on exporting our raw materials – new industries will only go to where there’s power.”

The bank’s aim is to raise $12 billion for the continent for something that it is calling, “The New Deal on Energy for Africa.” To do so, the financial institution is streamlining the process to invest in Africa and for foreign companies to do business there. The notion of colonial interests running roughshod over domestic peoples has become outdated and is giving way to the real need for outside investment to help modernized the continent.

During the peak of the global economic crisis, Africa experienced 6% economic growth. That’s still occurring and it’s amazing given that there are more than 600 million there without access to electricity. Electrification holds the key to economic development there.

The financing, overall, remains a function of African governments privatizing their economies and ridding of them of corruption — things that give investors better odds. And beyond that, the roads and railways within Africa are tough to traverse, which means that such infrastructure must first be laid out so that power plants and distribution systems can get built.

By 2050, Africa is expected to grow from 1.1 billion people today to 2 billion, with a total economic output of $15 trillion — money that will now, in part, be targeted to the transport and energy venues. As the investments compound and the associated opportunities expand, the thinking among both regional leaders and global economists is that gross domestic product could hit 10% a year.

“If you are in the power generation business, it sounds pretty attractive,” says Jeff Immelt, General Electric’s Chief Executive, speaking earlier to businesses and policymakers. GE is investing $2 billion in Africa. While the United States has been slow in coming, the European Union and China have been flocking there.

Other American businesses there include Rockwell Automation while Swiss-based ABB and Liebherr Group are in Africa as well, and Siemens of Germany. Meantime, Alstom, Areva and Schneider Electric, which are headquartered in France, are involved. All are multinationals with energy-related interests, which know their success is linked to improving the lives of the African people.

Electrification is the primary building block: blackouts, brownouts and power shortages are all too common in most African countries.

According to the International Energy Agency, sub-Saharan Africa will require $400 billion by 2035 to modernize its energy foundation. The United States’ Power Africa initiative will kick in $7 billion over five years, with much of that going to expand transmission lines to deliver the newfound electricity. Ethiopia, Ghana, Kenya, Liberia, Nigeria and Tanzania are the initial beneficiaries.

With all that need for new energy, just how will the countries of Africa generate their electricity? The international community speaks of harnessing the sun and the wind, and even the continent’s natural gas. Africa’s leaders agree, although they are quick to add that coal could fill a role too.

“One of the main things about the power deficit is that you have to start with the fuel,” says Jay Ireland, president of GE Africa, at an earlier conference. “There are trillions of cubic feet of natural gas off the coast. There’s also wind, hydro and solar.”

“Only 1 percent of energy capital goes to Africa,” adds Jim Yong Kim, president of the World Bank, at the same conference. “We need to prepare the deals and reduce the risks,” which includes adding political risks coverage and credit enhancements to investor packages. “We think that people will think in a fundamentally different way.”

Africa may be popularly perceived as a continent racked with poverty and wars. But it has evolved and it has shown a lot of economic promise. Enlightened leadership there is making space for private enterprise while also mitigating government controls. The results are evident: witness the previous economic growth and especially during a global downturn. That’s why the financial institutions there and around the world are looking to make even more room for private innovators, or those that can electrify nations and bring even more hope.

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